Journalists and commentators in the Republic these days are understandably exercised by the question of when our economic boom will end, and how. A question of more fundamental importance though is what caused the growth which has seen income per head rise from 60 per cent of the EU average to around 90 per cent over the last 12 years. This is the topic addressed by the UCD and ESRI economists who contributed to the recently published volume, Understanding Ireland's Economic Growth.
Somewhat surprisingly, it is still occasionally necessary to convince people of the extent of our recent economic success. Not everyone trusts the national income statistics. The reality behind our employment performance is more difficult to ignore. The State created four times as many (net) jobs over the last decade as Britain or overall EU.
Nor have all the benefits of the boom gone into job creation and higher profits. Wages, it is true have grown less rapidly than in Britain, but Irish workers gained more in terms of after-tax purchasing power because of low inflation and income-tax reductions.
How is it that we find ourselves in such an exalted position now, only a decade and a half since the fiscal crisis that threatened to sink us in a morass of high interest rates, high taxes and high unemployment?
The turn-around occurred in the mid-to late-1980s. This led some early commentators to identify the budget cuts of the 1987-89 period as the key, arguing that these boosted consumer confidence and spending. In fact though, their key contribution was to create room for future tax reductions, which underpinned the subsequent partnership agreements that delivered industrial competitiveness and peaceful labour relations.
In terms of hourly earnings, the Republic has experienced a 10 per cent competitiveness gain against Britain since 1987. We also improved our position in the European league tables in terms of other costs.
Cost improvements benefited all sectors. Allied to this has been the buoyancy of all the internationally-trading sectors, other than agriculture.
The buoyancy of tourism teaches an important lesson. Tourism-related employment has doubled since the mid-1980s. The most important factor setting the tourism bandwagon in motion was the decline in the cost of air access, dating from the liberalisation of the air routes with Britain. This shows dramatically how ill-served the national interest was by the authorities catering to the interests of "the national airline".
Employment in Irish-owned manufacturing has also risen, against both EU and OECD trends, and its export-market share has been improving since the mid-1980s. Far more dramatic, however, has been the growth in foreign-owned manufacturing.
Here the data show that while the single market triggered a sharp increase in the amount of foreign direct investment flowing into Europe, the Republic's share of this investment increased sharply.
The fact that the State had proved an acceptable location for foreign companies already based here made it appealing for other firms scouting for new European locations. The factors that made it desirable included the peaceful industrial relations environment, the benevolent bureaucracy and tax regime, educated labour, and infrastructural improvements. I want to focus on a couple of important lessons that we have yet to take fully on board. I pointed earlier to the spectacular gains that resulted from challenging the interests of a powerful monopoly. Thus the OECD calls for the taxi and public-house cartels to be tackled.
There is also a need for liberalisation of the more general public transport system. One reads with amazement that Mary O'Rourke emerged victorious from Cabinet with a commitment for more buses for Dublin! Yet the city is screaming for public transport. Such purely commercial decisions should not be taking up Ministers' time.
If political decision-makers are spending time on such matters, is it any wonder that it seems to take forever for action to be taken on matters which correctly lie within their domain? How is it possible for there still to be a backlog of 90,000 driving tests, for example? How is it possible that there are still traffic bottlenecks that have been in existence for the last 30 years? When house price levels started to prove unacceptable, why were height restrictions on buildings in new suburban areas not eased immediately? Our long-range decision-making capabilities still seem abysmal.
One of the most important areas where long-range decision making is required is in the field of education. We congratulate ourselves on a supposedly good system of education yet we still have substantial school drop-out rates and virtually no vocational opportunities for the educationally disadvantaged.
Frank Barry lectures in economics at University College Dublin and edited Understanding Ireland's Economic Growth, recently published by Macmillan Press.
Oliver O'Connor is on leave.
